Burying Inheritance Tax Puts New Jersey In The Hole

By Sarah Stecker

It is widely known that the federal estate tax is on the way out. Legislation enacted in 2001 phases out the tax to a point where it will disappear in 2010. This will, of course, cost the US Treasury a substantial amount of money. Less well known, however, is the fact that repeal of the federal estate tax also will drain significant revenue from every state. That is because, in varying degrees, every state ties its own taxation of inherited wealth to the federal estate tax.

Indeed, the new federal law is written in such a way that states will see the portion of their estate and inheritance systems that are tied to the federal estate tax disappear even sooner than the federal tax fully phases out.

New Jersey is no exception. At a time when a recession and the aftermath of years of questionable governmental financial practices are forcing policy makers to scramble to replace lost revenue, what has become a reliable source of state income-paid only by the wealthiest residents-is scheduled for elimination.

But it need not be the case. There are steps New Jersey can take to prevent this revenue loss and keep in place a system that has proved its worth over the years. This report explains the situation New Jersey faces and what can be done.

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